CF Bankshares Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. CF Bankshares is a financial holding company whose subsidiary, CFBank, serves businesses, consumers, and real estate borrowers, primarily in Ohio and Indianapolis.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $13.3 million | $10.4 million | $35.6 million | $31.1 million |
| Net interest margin | 3.36% | 3.21% | 3.17% | 2.94% |
| Net income | $4.2 million | $4.1 million | $13.5 million | $14.0 million |
| Diluted earnings per share | $0.65 | $0.61 | $2.06 | $2.10 |
| Provision for loan losses | $0.15 million | None | $0.15 million | ($1.6 million) release |
Q3 net income rose 4.2% year over year as higher net interest income more than offset lower noninterest income and higher expenses. Nine-month net income declined 3.5%, reflecting reduced mortgage-sale activity and the absence of the prior-year branch-sale gain, partly offset by stronger net interest income and lower expenses.
Financial position, cash flow and capital
- At September 30, 2022, total assets were $1.764 billion, up 18.0% from year-end 2021. Net loans and leases were $1.474 billion, up 21.4%; deposits were $1.490 billion, up 19.6%.
- Cash and cash equivalents were $198.1 million. Available liquidity, including cash, unpledged securities and borrowing capacity, was reported at $534.7 million; this includes $65 million in unused commercial bank lines.
- FHLB advances and other debt totaled $102.8 million, compared with $89.7 million at year-end. Subordinated debentures were $14.9 million. The holding-company credit facility carried a $22.8 million balance.
- For the first nine months, operating cash flow was $33.0 million, investing cash flow was negative $254.9 million, and financing cash flow was positive $253.4 million. Cash increased $31.5 million to $198.1 million.
- Stockholders’ equity was $134.9 million, up 7.6% from year-end. CFBank’s September 30 regulatory ratios included 11.65% common equity tier 1 and 12.78% total capital to risk-weighted assets; it exceeded the stated well-capitalized thresholds.
Material changes and notable items
- Management exited its direct-to-consumer mortgage business in favor of regional portfolio lending with servicing retained. Loans held for sale declined from $28.0 million at year-end to zero; lower mortgage-sale gains weighed on nine-month noninterest income.
- Loan growth was broad, led by single-family residential, commercial, and construction lending. The allowance for loan and lease losses was $15.7 million, or 1.05% of loans, versus 1.26% at year-end. Nonperforming loans were $1.0 million, or 0.07% of loans.
- Deposit growth included approximately $147 million from new public-funds relationships. Brokered deposits were $296.8 million; reciprocal CDARS/ICS balances that did not qualify as brokered were $151.2 million.
- Q3 noninterest expense included a $570,000 impairment charge associated with the planned sale of the Worthington headquarters. The company accepted an offer in September and entered into a sale contract in October, with closing anticipated in Q1 2023.
- Data-processing expense increased following a core-processing-system conversion during Q3. Two new banking locations opened in October, following earlier openings in Columbus and Indianapolis.
- Available-for-sale securities had $2.1 million in unrealized losses at September 30, largely attributed by management to market conditions rather than credit quality. The filing reported no intent or expected need to sell before recovery.
Outlook, risks and contingencies
The filing provides no quantified earnings or balance-sheet guidance. Management said current liquidity was sufficient for operating needs and strategic plans and described continued focus on loan growth, capital generation, and credit monitoring. It cautioned that future credit-loss provisions could rise if borrower performance, economic conditions, or real estate values deteriorate.
Key risks include rising funding costs and interest-rate changes, credit concentration and economic exposure to Ohio, competition for deposits, and the potential effects of recession, inflation, and supply-chain disruption. Management reported no material change in market risk from its 2021 Form 10-K. Ordinary-course legal matters were not expected to have a material adverse effect. The company expects to adopt the current expected credit loss standard (CECL) for periods beginning after December 15, 2022 and did not expect a significant impact, while evaluation continued.
Controls and procedures were assessed as effective at quarter-end. The filing reported no material change in risk factors from the previously filed annual and quarterly reports.
Investor verification checklist
- Track whether deposit growth—especially public-funds and reciprocal balances—persists and at what funding cost.
- Monitor loan growth, criticized classifications, delinquencies, nonperforming loans, and allowance adequacy as economic conditions change.
- Assess net interest margin and earnings sensitivity as deposit and borrowing rates adjust.
- Verify completion and proceeds of the headquarters sale, and whether impairment or relocation costs recur.
- Review the impact of the mortgage-business repositioning, new branches, and CECL adoption on future earnings and credit reserves.
- Confirm liquidity availability, capital ratios, and any constraints on dividends or share repurchases.